Jiangsu Tongrun Equipment Technology Co.,Ltd's (SZSE:002150) price-to-sales (or "P/S") ratio of 3.1x may not look like an appealing investment opportunity when you consider close to half the companies in the Consumer Durables industry in China have P/S ratios below 2.1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Jiangsu Tongrun Equipment TechnologyLtd

How Jiangsu Tongrun Equipment TechnologyLtd Has Been Performing

Jiangsu Tongrun Equipment TechnologyLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Jiangsu Tongrun Equipment TechnologyLtd's Revenue Growth Trending?

Jiangsu Tongrun Equipment TechnologyLtd's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. This was backed up an excellent period prior to see revenue up by 45% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's about the same on an annualised basis.

With this information, we find it interesting that Jiangsu Tongrun Equipment TechnologyLtd is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Jiangsu Tongrun Equipment TechnologyLtd's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We didn't expect to see Jiangsu Tongrun Equipment TechnologyLtd trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Jiangsu Tongrun Equipment TechnologyLtd has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're unsure about the strength of Jiangsu Tongrun Equipment TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.